Shareswatch Australia

Australian stock market investing, ASX charts, analysis & market forecasts.

Shareswatch Australia header image 2

Japan, China and the Australian Economy.

December 28th, 2008 · Greg Atkinson · 17 Comments

One of the many misjudgements made by the Rudd Government in managing the Australian economy this year has been their almost fanatical belief that Australia would be shielded from the worst of the global financial crisis because of our trade with China. For the first part of this year in addition to the “War on Inflation”, Rudd and Swan were also pushing the line that our significant exports to China would keep the Australian economy ticking over nicely despite the problems brewing in the economies of the United States and the Eurozone.

The problem with this thinking is that it neglects the fact that China is not our biggest export destination; Japan is. It also highlights the lack of international experience the government has and also questions if the Reserve Bank really understands how global trade works in the 21st century. Maybe the government has found a secret destination for Australia’s exports? Or maybe they just do not understand where our exports go?

If we look at the top three export destinations for Australian products and services you can quickly appreciate that Australia is not shielded from the global economic slowdown at all. In fact we have no shield, and any protection we did have was negated via the Reserves Bank’s internet rate blunders early in 2008.

Australia’s top export markets. 2007-2008. ($AUD Millions)

Country Goods Services Total % Share Rank
Japan 34,936 2,498 37,434 16.1 1
China 26,927 4,433 31,360 13.5 2
United States 10,604 5,871 16,475 7.1 3

Source: DFAT.

If we add together the figures for all European Union economies then the EU would be our 3rd largest export market with total exports in 2007-2008 adding up to $29,210 Million AUD.  Therefore three out of four of our top export markets are in an economic slump and I doubt China is going to have a great 2009 either.

I suspect one of the reasons Australians are bombarded with the “it’s okay we export to China” propaganda is because of Rudd’s dangerous obsession with China. The reason for this obsession is that he has has little work experience outside politics apart from his time as a diplomat in China, so he is in his comfort zone when talking about China and thus he has dragged Australia’s focus in that direction as well. What the mainstream media have generally failed to pick up is that Rudd may have built a good relationship with China, but he has done so at the expense of Australia’s relationship with Japan.

Japan is Australia’s largest export destination but China is our largest overall trading partner. But we import more from China than we export whereas with Japan we export much more than we import. Therefore simply put, Japan is a more profitable trading partner for Australia but thanks to the Rudd government, Australia’s reputation in Japan has been tarnished. First by an over zealous policy against whaling, and then by Rudd’s snub of Japan during his jet setting days just after he took office. (and he continues to pump tonnes of CO2 into the atmosphere during his VIP jet world tours)

Of course the government denies any damage has been done to the Australia-Japan relationship, but I can tell you as an Australian in Japan that our country is on the nose. This was blatantly obvious when Rudd finally visited Japan and received almost no coverage by the Japanese mainstream media. I am also often questioned by Japanese why Australia has become pro-China and is ignoring Japan….it seems they thought our two nations had a better relationship. (so did I actually)

The Japanese economy is currently feeling the full force of the global slowdown. This is no surprise as few countries are as plugged into the global economy as Japan and the extent to which world trade has fallen was highlighted recently, when industrial output in Japan fell by a record 8.1 percent in November. (the biggest fall since statistics started to be released in 1953)

This downturn in Japanese industrial activity will have major consequences for Australia and if the government thinks that the pre-Christmas handouts to tax payers will significantly buffer the Australian economy from this, then they are bigger fools than I first thought. Stores like Harvey Norman might have enjoyed some healthy Christmas sales but come 2009 they will be shutting stores and the Christmas cheer will be soon long gone.

Economic conditions in Japan act as an excellent indicator of how the global economy is tracking. Japan’s major trading partners are the United States and China and together they form the big three of global trade. With two out of the three in a major economic downturn you would have to be the ultimate optimist to think China is somehow going to keep chugging along nicely. My bet is China is about to enter a major economic downturn and that the heady days of double digit GDP growth are over.

There is also the danger of major social unrest in China, for if millions of Chinese workers find themselves out of a job as a result of the economic downturn, then things could get very nasty.  Economists and market analysts often try to maintain the China boom message by playing down the possible threat to the economy posed by social unrest, however the threat is significant and I sure the authorities in China will be doing all that they can to keep as many people employed as possible. (hence the reason for the major government spending program they announced some weeks ago)

There is no doubt that China is one of Australia’s most important trading partners but to ignore our relationship with Japan is a risky strategy. In these difficult times a wiser course of action would be to hitch our wagon up to as many horses as possible, not just picking one and hoping it does not go lame part of the way through the journey. For Australia to avoid a deep recession we need a strong Japanese economy even more than we need a strong Chinese economy. I just hope the government remembers that in 2009.

17 responses so far ↓

  • 1 Rob Roy // Feb 11, 2009 at 3:24 pm

    Do you have any information linking the Australian Antarctic waters territorial /economic claim, the anti-whaling campaign, media briefing, and the soft support for the Sea Shepherd?

  • 2 Greg Atkinson // Feb 22, 2009 at 10:33 am

    Sorry Rob I dot not have any information that would help you.

  • 3 TY // Apr 3, 2009 at 11:24 am

    Always thought provoking to read your perspectives. Especially AUS/JPN…

    Check this out!

    Perhaps he read your comments!

  • 4 Greg Atkinson // Apr 3, 2009 at 6:13 pm

    Thanks TY..glad you like the blog.

    I guess the Treasurer might have looked at the trade figures once again and realised that it is probably a good idea to pay some attention to Japan. Then again he might have been to this site the sneaky fellow. I just hope he doesn’t get Conroy to put shareswatch on the Internet blacklist ๐Ÿ™‚

  • 5 TY // Apr 3, 2009 at 10:40 pm

    Good timing for him with the blooming Cherry blossoms.. though I understand they are a week late.. Perhaps he will be invited to a ‘hanami’ one evening…

    Always on the prowl for a perspective outside the mainstream media… Especially since Aussie news can be deplorably insular!!! I liked your ‘summaries’ on real estate also.. but hit too close to home since I am very close to signing a contract to buy!! oh well.. =)

  • 6 Greg Atkinson // Apr 4, 2009 at 9:59 am

    Hi TY, I think he might miss the hanami parties. Down here in Fukuoka I was drinking under the cherry blossoms about a week ago and now we have had some rain/wind most of them have blown away ๐Ÿ™

    I think it is a good idea to venture past the mainstream media if you want to dig into issues and get some other views. I find that most Australian media pretty much report the same stories and their reporting/analysis does not vary that much. (and for international stories they are often using the same sources anyway)

    Hope things go well with your real estate purchase!

  • 7 TY // Apr 4, 2009 at 11:05 pm

    Ah… jealous.. I missed the Cherry Blossoms by a week.. did see some though… quarter maybe..

    Not only that the stories do not vary much.. (not always the case, there are definitely some insightful writings)… but I am often amused at the coverage.. I remember being in Hong Kong, the news was full of the stories on Rohingya refugees and the Thai army… Sydney, mostly the cricket one dayers with SA.

    Question.. what do you think? Japan’s GDP, heavily reliant on industry output, manufacturing etc.. Do you think they will hold back and wade out this drop in demand? Or break out and try to expand/diversify in other areas? Or another option?

  • 8 Greg Atkinson // Apr 6, 2009 at 2:27 pm

    TY I think the Japanese economy is actually pretty diversified when you think about it. If you look for example at the companies that make up the Nikkei 225 you can see it is a pretty mixed bag. The fact is there is not a lot a an advanced economic nation can do if global demand falls in a heap apart from trying to limit the damage and making sure they are ready to get going again when things pick up. At the moment Japanese companies are doing what they can to ride out the storm but some of them are also aiming to tap into other areas/markets by snapping up companies in the U.S and Australia for example while prices are low and the Yen is strong. For example Nomura last year purchased Lehman Brothers Asia and MUFJ took a 21% stake in Morgan Stanley.

    If things do manage to pick up later this year then my guess is Japan will actually come out of this mess in better shape than many other economies (including Australia). I know many in the western media like to convey the image that Japanese companies are poorly managed and over staffed but actually the opposite is more correct..that is why Toyota can beat G.M and Ford on their home turf!

  • 9 TY // Apr 7, 2009 at 10:14 pm

    Thanks for your perspective on a very vague and open question. =)

    I have been there several times this year on consulting and hence my focus is on what needs to be improved and what is not sustainable, since that is what I am there for. What is particularly positive, which was not expected, is that they are open to change! Different story to 5-10 years ago. Hence the open question on whether you think they are ‘diversifying’. Perhaps better phrasing would be ’embracing change’.

    From what I see, companies are not poorly managed and I admire the reasons they keep their staff in tough times. Only thing I’d say is that they can take a long time to get something done. But thats because when you get it, its more than you expect and with minimal mistakes!

  • 10 Greg Atkinson // Apr 8, 2009 at 9:51 am

    Hi TY, I think Japan is often misunderstood. For example when I first took up a role in Japan over 10 years ago I use to stress about how long they took to make a decision and thought this affected progress but actually they have things the right way around.

    Often in western companies only a very high level plan is made before the “go” button is pushed and then somehow in the chaos that results people are supposed to sort things out and get the job done. In Japan the detailed planning is often done upfront and literally no stone is left unturned in the early planning, but once they get moving they really get moving!

    Remember Japan is a world leader in many fields of R&D and is probably the most modern in terms of infrastructure so clearly they do get things done. The high speed rail network (Shinkansen) in Japan for example was up and running decades before anything similar was up in Europe and even though it operates in a country with frequent earthquakes there has not been a single fatality in around 40 years of operation.

    I would also say they have always been pretty open to change, but just not perhaps the changes westerners want. Change is how Japan dragged itself out of the ruins of the war and become a major economic power, it is just that the change is more incremental in nature rather than sudden burst of activity.

    The way that Japanese have also embraced technology is another example of how they have embraced change…from everything for mobile phone to nuclear reactors.

  • 11 TY // Apr 8, 2009 at 9:49 pm

    Nicely argued.. The change that I am referring to is indeed what you mentioned, concerning foreign influences and ideas. They are definitely not as difficult as China, in terms of allowing foreign companies access… and they seem to want to open up even more..

    You are very partial to Japan… Its a very easy country to like! I must admit the more I go over, the more I fall under the spell.

  • 12 Greg Atkinson // Apr 8, 2009 at 10:04 pm

    TY, the place sort of grows on you as they say ๐Ÿ™‚

    I think a good example of the difference between say Japan and Australia is the current debate we have about broadband. In Japan I recall first having a dial-up internet connection back in 1997, but over time and without much fuss a standard connection at home in an urban areas is now 100 mpbs via fibre. This was done I am sure with plenty of debate and planning but was also undertaken in steps gradually over time. In Australia however where we feel we make decisions quickly, we find ourselves lagging behind in broadband speeds and yet we are still talking about building a national broadband network ๐Ÿ™‚

    I could also go on about public transport, but that rant would go on for pages!

  • 13 TY // Apr 10, 2009 at 1:28 pm

    I would join in the rant!!! And totally agree about the broadband.. at least on the Aussie side.. you can only really laugh at the whole broadband, Telstra, government etc debacle… I will take your word for the Japan side!

  • 14 Greg Atkinson // Apr 10, 2009 at 10:00 pm

    TY, let’s just see how long it takes before you can move across the Sydney rail network without needing a ticket but instead using a payment application in your mobile phone ๐Ÿ™‚ Even down here in sunny Fukuoka you can do that now. (and of course has been in possible in Tokyo for a few years)

  • 15 TY // Apr 12, 2009 at 8:49 pm

    While in Sydney, some guy develops an application to download the train time tables onto the iphone, itouch and Cityrail shuts him down!–handhelds/articles/cityrail-puts-brakes-on-iphone-timetable-app/2009/03/05/1235842537210.html

    I rather enjoy laughing rather than getting frustrated…

  • 16 Greg Atkinson // Apr 24, 2009 at 4:48 pm

    TY..amazing isn’t it. You would think anything to help train commuters would be welcomed! I dread getting onto the trains when I am back in Sydney, they seems to spend billions on new trains but they are still late, dirty and often unsafe. Mind you in Tokyo it can get a little tight for space during the morning rush hour and I have been pressed up against the door quite a few time! (but the train still runs on time)

  • 17 Greg Atkinson // Jul 11, 2009 at 8:57 am

    Well it only took the mainstream media 6 months to realise that Japan might be important to the Australian economy. See: Slowing pains which appeared in the online version of the Sydney Morning Herald today.

Leave a Comment



This site is not intended to act as any form of financial or investment advice.  © 2008–2017 Shareswatch Australia — DisclaimerCutline by Chris Pearson


The information contained in this website is for general information purposes only. Whilst we endeavour to keep the information up-to-date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk. Please seek professional advice before making any investments.